Broadcom ready for wearable tech to take off

Commentary: Standards and consumer education are biggest issues

Broadcom CEO Scott McGregor is touting the future of wearable computing devices that could use his company’s chip products.

SAN FRANCISCO (MarketWatch) — Chip maker Broadcom Inc. is getting ready for the wearable computing market to take off — and hoping this fashion trend will lift its own business prospects.

Broadcom
US:BRCM
Chief Executive Scott McGregor was in the Bay Area this week, talking to the press about the Irvine, Calif. company’s efforts in the burgeoning area called “the Internet of Things.” This latest tech buzz word refers to connecting a huge range of utilitarian devices from toasters to home thermostats to watches to the Internet.

Broadcom

Broadcom CEO Scott McGregor meets with reporters during a visit to the Bay Area this week.

Cisco Systems Inc.
CSCO, -4.02%
recently predicted that by 2020, there will be 50 billion devices connected to the Internet.

“I think it could be a very big market,” McGregor told reporters. Scott Pomerantz, the general manager of wireless connectivity business, was even more bullish. “This is just exploding now,” Pomerantz said. “And it falls right in our sweet spot.”

Broadcom already sells wireless chips that are emerging in a range of devices, such as a temperature gauge from Aginova Inc. called iCelsius to a Bluetooth-enabled cooking thermometer called iGrill, made by a startup called iDevices. In these new emerging markets, executives said Broadcom will be selling to a much wider range of customers, from very small startups, to big companies like Apple Inc.
AAPL, -1.92%
and Samsung Co. Ltd.
005930, -0.17%

Still, the company draws much of its current business from smartphones, where growth has been slowing in certain segments, and competition growing with bigger companies like Qualcomm
QCOM, -1.95%
and chip giant Intel
INTC, -1.79%
spending big to compete.

Broadcom’s most recent quarterly results and forecast disappointed Wall Street, sending the stock on a tailspin. The quarter included an impairment charge of $501 million related to its acquisition of NetLogic Microsystems. Broadcom’s shares are now down 25% for the year and closed a their lowest level in more than 4 years on Tuesday, as McGregor was making his visit.

The market for wearable devices will not be limited to just the two giants of the smartphone market, McGregor said. Both companies, though, are expected to launch smartwatches in the near future. Samsung confirmed in an interview with the Korea Times that it will unveil a wearable device called Galaxy Gear, on September 4. The device will connect to the smartphone but it will not have a flexible display. Apple has been rumored to be working on a product widely dubbed the iWatch, but the company does not ever comment on unannounced products.

McGregor said the market, because of the low cost of the chips needed for these products, will see all kinds of devices and ideas that no one can fully predict today. He said he just personally contributed to a Kickstarter campaign for a company making an exercise monitoring device for dogs.

“Some [devices] will be cool and some will be left in the drawer, frankly,” he said. He described the arena as bringing “incremental” revenue to Broadcom, which has seen its annual sales growth remain in the high single-digit range for the last two fiscal years.

Two trends emerged at Broadcom’s press meeting on Tuesday that are the most likely factors that could affect the adoption rate of these new devices.

One is consumer education, and the other is the expectation of warring wireless communications standards and development platforms. WiFi was not developed as a consumer technology, one executive noted, and teaching some users how to find and interact with wireless networks via their smartphones is going to be part of the consumer education process.

With innovation slowing in smartphones — Apple’s rumored champagne-colored iPhone a perfect example of stalled invention — the tech press is focused on wearable devices like smartwatches and Google’s Glass and whatever else comes next as the next big, big thing. But as the Broadcom executives noted, it’s still the very early days.

“If we were to write down on a piece of paper what we think will be successful [in five years],” McGregor said, “I bet we would all be wrong.”

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